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Vladimir Putin had a working meeting with Chairperson of the Accounts Chamber Tatyana Golikova to discuss the results of the organization's work over the first half-year and the state of progress on instructions given following the Direct Line event.

Ms. Golikova, let’s start with the results for the first six months. I know that you are using new technology now. You can tell me about this too. On a separate matter, there is also the question of the Direct Line instructions. There were three things I wanted you to look into, monitor the situation and ensure that everything is moving in the right direction.

Accounts Chamber Chairperson Tatyana Golikova:

I want to share with you the results for the first half, not so much in terms of the quantity and amount of violations, though this is important too, above all for how federal budget money is being used.

I want to say first that in 2014, we began modernizing our information systems in order to reduce inspectors’ work when preparing their checks, cut down the time spent away conducting checks, and make it possible to obtain more information locally using the extensive information resources that the federal agencies already have at their disposal.

I think that we have achieved results here. In 2016, we launched the remote audit information system and have integrated into it the various federal agencies’ information systems. This means that we have online access to all the information and can use these information systems to track practically all violations without having to physically go to the site.

The benefit gained here is that we can carry out preliminary checks without letting the situation reach a point where actual violations take place. We can step in at an earlier point to speak with colleagues and warn them that we see signs of violations in their financial and economic activity.

We created and operate an information resource called The Internet Portal of Control and Accounting Bodies. Actually, of Fiscal Control and Auditing Bodies. It has 456 different agencies taking part, all of which are involved in one way or another in internal control.

This vast quantity of data enables us to use a risk-focused approach in our practical work. In other words, we see where the volumes are higher, where there are more violations, greater risks, and where we should go with inspections. Increasing transparency in this way has brought to light more violations, and so we have a much higher figure for the first half of this year.

Vladimir Putin with Accounts Chamber Chairperson Tatyana Golikova.

Vladimir Putin:

A higher number of violations identified?

Tatyana Golikova:

Yes, that’s right. For 2016 as a whole, we had 3,845 violations totaling 965 billion rubles, but for the first half of 2017, we have 2,631 violations for a total 1.13 trillion rubles.

If we average out the quantity of violations identified for each inspection conducted, in 2016, on average, each inspection revealed 15 violations for around 3.7 billion rubles, while in the first half of 2017, each inspection revealed 18 violations for a total 6.9 billion rubles.

The most frequent violations are in budgets and accounting, and we are not talking about technical mistakes here. I spoke about this last time we met, but the problem has become even clearer now. There violations account for 62 percent of all violations and add up to 629 billion rubles of the 1.13-trillion total.

What do these violations involve? As a rule, it is a case of not reflecting aspects of economic activity in the accounts and reports. To give a simple example, the Leningrad Region and St Petersburg branch of the Federal Penitentiary Service signed a contract for construction of a prison facility. The contract was not performed according to deadline. A penalty of 767 million rubles was imposed, but this sum was not recorded in the accounts and therefore will not be paid in as budget revenue.

There are many such examples in practice. There are a great many incomplete construction projects that are not reflected in the accounts.

As for other violations, they include infringements of the budget law. This category comes to a total of around 168 billion rubles. This includes, for example, violations in provision of budget loans to the regions by the regions themselves. Such violations came to 15.5 billion rubles in the first half.

Violations in procurements came to 18.5 billion, and violations during computerization of federal agencies came to around 22 billion (these are violations that occurred in 2016 but only appeared in our report in 2017).

What does this involve? We have a rule that before creating any information systems or carrying out any work in this area, the federal authorities must first coordinate their plans with the Ministry of Communications.

This approval usually takes place with delays or is not carried out at all, and the Ministry of Communications gives it approval post-factum. We have briefed the Government on this matter and we hope that this situation will be rectified.

In this context, another point I want to bring to your attention is that we noted that the qualifications of those working not at ministerial level but further down the scale leave much to be desired in terms of respecting financial and budget discipline.

We decided to approach this situation from a fresh angle. The statistics might surprise you, and we will do a final review of results only in November, but we already have interim results that show what is happening in the system of state governance.

Beginning in 2012 and through to 2016, the number of civil servants increased, and then in 2016, it fell by 5.6 percent, with most of the cuts being made at the bottom levels.

We now have an increasing number of administrators. The number of deputy heads of federal authorities has increased by 18 percent, the number of department heads increased by 21 percent, and the number of directorate heads was up by 13 percent. I could continue.

In the regions, the number of civil servants overall is down by 11.9 percent, but the number of people at the managerial level is up by 8.4 percent.

There is a very worrying trend: The number of territorial bodies has decreased by 4.5 percent, but the number of subordinate agencies created by federal authorities to run their activities has increased by 25 percent.

This is not to perform actual functions in say, healthcare or education, but to support the federal authorities’ work. Twenty-five-percent growth here is a very high figure. This is all extra budget spending, transfer of functions, and in some cases, bypassing law No. 44, in order to be able to carry out procurements under more liberal regulations.

This, of course, is ultimately about the issue of effectiveness that we keep talking about. It seems to us that this system has grown out of proportion and we need to take serious steps to move forward now.

Vladimir Putin:

Reflect on it and put forward your proposals.

Tatyana Golikova:

We will complete our work here by autumn and will draft our proposals, because many of these organizations feeding out of the budget’s pocket could be let go without the slightest problem.

Vladimir Putin:

What about the instructions related to Direct Line?

Tatyana Golikova:

Mr. President, you gave the instructions to look into what happened in the Stravropol and Trans-Baikal territories.

Regarding the Trans-Baikal Territory, other control and law enforcement agencies were there before us. We did not go back over what had already been checked, but focused on ascertaining whether all commitments regarding provision of housing to those affected have been met.

We also examined what happened with funds allocated for agriculture and looked in general at whether the region makes preparations for the wild fire season.

Fortunately, or perhaps unfortunately, I don’t know, we spoke with the region’s new heads and, understandably, they cannot answer for their predecessors’ actions, but we nonetheless drew their attention to the problems I will tell you about and asked them to remedy these problems without delay.

Regarding the local residents, the set plans for housing provision were carried out, but the quality of housing provided is another matter. The subcontractor that built and repaired housing was, regrettably, not very conscientious, and so there are many complaints about the quality of the housing and of the repair work that was done.

Furthermore, they used technology that is not suitable for this region, for example, they used so-called stretch ceilings that are completely unsuitable for the region’s climate. Of course, all of this has developed problems and lays bare the existing problems.

But there is another problem too. You know well that the Trans-Baikal Territory has a large amount of dilapidated housing and housing unfit for habitation, but we are still a long way from completing the plans to relocate people from all housing recognized as dilapidated as of January 1, 2012.

This housing stock was in part to be repaired and rebuilt, but it is probably easier to relocate people into new housing than to get it into proper shape. The regional authorities are now making claims against the subcontractor organization and have filed in court. We await the results of this issue’s examination.

Furthermore, 31 million was allocated for agriculture. This sum was approved with the Agriculture Ministry, and overall, comparing it to the application the region made, the region’s agricultural producers should be receiving on average 81 percent for their activity.

But for some reason other decisions were made and the new authorities do not know why. In other words, the internal regulation in the Trans-Baikal Territory differs to the one adopted at the federal level and they were using a differentiated approach, with some businesses receiving 45 percent and others receiving 91 percent.

Now they are trying to sort out this situation. Obviously, it is not going to be possible to get the money back, even if it was not used for its designated purpose. We have identified particular violations and sent them to the regional authorities and asked them to eliminate these problems.

As for the emergency situations, it has to be said that the forest management plans that are currently in force in the Trans-Baikal Territory have long become obsolete. These plans date back to 2008, and do not comply with the forest management regulations. Unfortunately, I have to report that preventive efforts, including flying over territories and efforts to clear roads and forests, were inadequate.

However, there are also outstanding regulatory issues, as we have pointed out in our written report. The current laws and regulations fail to specify who should be in charge of putting out forest and steppe fires. As of today, no one bears responsibility for this activity, which, of course, affects the population.

The Accounts Chamber and the Federal Forestry Agency [Rosselkhoz] pointed this out to the Trans-Baikal Territory authorities. The Federal Forestry Agency was involved in examining this issue. We do hope, and at least they have assured us, that all these shortcomings will be addressed, and we will not fail to report it to you once it happens.

As for the Stavropol Territory, the situation there is quite different. I have to say that in accordance with the regulations (taking into consideration that the Government of the Russian Federation issued the relevant documents on time), the Stavropol Territory has started making payments from its own budget.

However, under the current laws, it is not yet clear how the region will receive compensation from the federal budget for these payments, if what happened there is recognized as a federal-level emergency situation.

Vladimir Putin:

Has the Government issued a resolution to this effect?

Tatyana Golikova:

No, it has not. There was no resolution on the compensation of expenses that were incurred beforehand.

Vladimir Putin:

What do you mean by beforehand? They had an account balance that they could use to make the payments.

Tatyana Golikova:

They did pay. But we have a classification of emergency situations: there are federal-level, regional and municipal emergencies, and specific regulations apply to each one of them. If an emergency is recognized as a federal-level event, the expenses are to be covered from the federal budget.

The Stavropol Territory started the payments. There were some delays in specific municipalities, which is attributable to the negligence of certain municipality heads. Today, all these payments are underway.

We referred all the shortcomings to the prosecutor’s office on the spot. These include various corrections made in the documents and making payments to those who were not entitled to them.

That said, if the emergency situation is recognized as a federal-level calamity, and if the region has already made the necessary payments, they cannot be compensated from the federal budget. They have made the payments and that’s that. This is what the current regulations tell us.

Vladimir Putin:

Was the money transferred?

Tatyana Golikova:

It was all transferred. On June 16, the money that came from the Finance Ministry began to be paid out on top of the money that the Stavropol Territory budget allocated.

Vladimir Putin:

They had two billion on their accounts, I think.

Tatyana Golikova:

Yes, they had money on their accounts and they made the payments. There was a situation there when people were asked to pay for getting the needed documents. This was the case with the expert organizations that delivered the document concluding that their housing was no longer fit for use and that were entitled to a state housing certificate. People were asked to pay 5,000–6,000 rubles for this.

Vladimir Putin:

This is absurd.

Tatyana Golikova:

The situation was rectified and people had their money returned. The only problem was that the banks then took a commission from people for the return of the payment.

Then there was a fee of around 1,800 rubles that Rosreestr [the Federal Service for State Registration, Cadastre and Cartography] demanded to issue a certificate confirming that this was a person’s only home. The Stavropol Territory authorities say that this matter has been settled now and people had their money returned.

Vladimir Putin:

Check whether it was returned or not. That is the first thing. Second, rules must be set for once and for good to ensure that this kind of nonsense does not happen again. People lost everything they had and the state gave the money to support them, and then you have these various organizations each trying to take something from them, 1,000, 3,000, 5,000 rubles.

Tatyana Golikova:

There was another problem too there that you should be informed about. When the money came into the accounts of people affected by the disaster, if these people had debts, the Federal Penitentiary Service deducted this money from their accounts and no one informed them that these people were disaster victims. This matter also needs to be regulated because these people could not make use of the money they had been paid as disaster relief.

Vladimir Putin:

Ms. Golikova, please draft proposals for the needed legal amendments.

Tatyana Golikova:

Yes, Mr. President. I have one more point to make. I think this is also an important issue and the instruction can only come from you.

The Otkaznenskoye reservoir in the Stavropol Territory, the water management system that overflowed its banks, was built in 1965. The project documents for the facility show that it needed to be cleaned after 31 years. It is 62-percent silted up.

There was such heavy rainfall that the level rose too far. This reservoir is currently the federal budget’s responsibility. I think we have quite a number of such facilities.

This water management system is the responsibility of the Agriculture Ministry, not the Natural Resources Ministry.

Vladimir Putin met with Government members to discuss possibilities for further developing treasury monitoring of budget spending, the situation with co-funded housing development, and a number of other current issues.

President of Russia Vladimir Putin:

Good afternoon colleagues.

Today, we will discuss the results of work and further development for treasury monitoring of budget spending. Before we start though, I would like to hear a few words on recent decisions, particularly on an issue that is very sensitive and painful for many people – co-funded housing construction projects.

We know there have been many problems, as well as numerous and justified complaints that the state authorities did not ensure sufficient oversight in this sector. But new decisions have been taken, and since the start of 2017, the rules have changed considerably for developers attracting household funds to finance construction.

I ask Mr. Men to give us some more details on this matter.

You have the floor.

Minister of Construction, Housing and Utilities Mikhail Men:

Mr. President, colleagues,

Russian Government took a number of measures to act on the instruction you issued following the State Council meeting examining strategy in the construction sector. A number of changes were made to the law on participation in co-funded housing construction and came into force on January 1, 2017. These amendments aim to better protect people taking part in co-financing of apartment block construction projects.

One of the key changes is to set requirements regarding developers’ financial resources, namely, their charter capital, depending on the housing construction project’s area. The supervisory bodies in Russia's regions have gained new powers; they examine the situation, and without their report concluding that a developer meets the new law’s requirements, the developer cannot register a shared construction participation agreement and therefore cannot start raising money from the public.

The new law also makes important changes increasing the information transparency of developers working with citizens’ money. The law sets mandatory requirements regarding the content and accuracy of information disclosed. The law also regulates mechanisms for banking project financing for construction projects, involving the opening of accounts and escrow accounts for holding the funds of those taking part in co-funded construction projects.

Following your instructions after the State Council meeting, amendments were introduced and bylaws were passed to establish and begin the operation of a state compensation fund. Developers will make mandatory contributions to this fund of one percent of the shared construction participation agreement’s sum. If a developer goes bankrupt, money from the fund will be used to cover the problem building’s completion, or to repay the losses of those taking part in the project.

Russian Government has drafted additional amendments to a number of laws, which will be submitted soon to the State Duma, in order to ensure this state fund’s effective operation and establish a common mechanism for protecting shared construction participants’ rights exclusively through this compensation fund. I hope that our Duma colleagues will give these amendments their priority attention. We ask for your support on this.

The fund began operation on January 1.

Thank you.

Vladimir Putin:

In this context, there is a second question.

Housing mortgage loans have increased by around 30 percent compared to 2015–16. Overall, more than 6 million citizens have made use of housing mortgage loans to improve their housing conditions over 2005–2016. What measures do you plan to develop this process further?

First Deputy Prime Minister Igor Shuvalov:

Russian Government is working on the mortgage issue, keeping in mind the target figures set by the Presidential Executive Order of May 7, 2012. The target was to have at least 815,000 new mortgage loans a year. We had a good year in 2014, with more than a million new mortgage loans. Then we went through a difficult year in 2015. The Government briefed you and got your support for including in the anti-crisis program measures to subsidize interest rates of mortgage loans to buy newly constructed housing.

This program was quite effective and some people even consider it one of the anti-crisis plan’s most effective measures. As regards our commitments, we think for now that total spending on this measure will not come to more than 17 billion rubles, with a total of 25 million square meters of new housing purchased.

Considering the low inflation we had in 2016, and seeing that the financial market has stabilized significantly now, the Government has decided not to continue this program, because the commercial banks are already offering mortgage loans at 12 percent or less interest. Our goal under the anti-crisis plan was precisely to give borrowers a rate of not more than 12 percent. At the time when we took the decision on subsidized rates, banks were offering loans at 20 percent interest. There was practically no hope for such a product on the market.

The measure has fulfilled its task and we have already stopped it. We hope that over 2017, along with the drop in the key interest rate, Sberbank, VTB Bank and other commercial banks will also lower their rates and mortgages will become more affordable for the public.

As you noted, the mortgage loan portfolio grew in 2016, and we have reached the target figure – the statistics agency confirms a figure of 862,000 mortgage loans in 2016. We hope that the figure will pass the 1-million mark in 2017.

(Mr. Shuvalov went on to brief the meeting on the work of the Agency for Housing Mortgage Lending, its cooperation with the Central Bank and commercial banks, and on measures to get housing onto the market).

Vladimir Putin:

We all know that today’s oil price is linked to plans to reduce oil production. Mr. Novak, what is the situation with this production reduction plan?

Energy Minister Alexander Novak:

Mr. President, colleagues,

On December 10, 24 countries, the leading oil producers, reached an agreement on stabilizing the situation on the oil market and the need to start reducing oil production as from January 1 by a total of around 1.8 million barrels a day. The OPEC countries (13 countries) account for 1.2 million barrels a day of this reduction, and the 11 non-OPEC countries for 558,000 barrels a day. Russia will take voluntary part in this agreement and will potentially reduce production by up to 300,000 barrels a day.

The agreement will be in effect over the first half of the year. We agreed to establish a monitoring committee at ministerial level. The committee met for the first time on January 22 in Vienna to discuss two issues: first, the mechanism for monitoring implementation of the agreement, and second, the situation with the agreement’s implementation in January.

Regarding monitoring, we agreed that five countries’ ministers would sit on the committee. They include two non-OPEC countries – Russia and Oman – and three OPEC countries – Kuwait, Algeria, and Venezuela.
We agreed to set up a technical committee for the monitoring process. It will meet monthly at the OPEC secretariat and collect information on production in the countries party to the agreement and pass on this information to all participant countries. The ministerial level monitoring committee will meet twice a month to review the results.

Another two meetings will take place before the agreement ends. The production information’s source is data from the main analytical agencies, Platts, Argus, CERA and the International Energy Agency. At the meeting, we noted that although we have yet to receive statistics for January, we saw that all parties were serious about implementing the agreement and most had already begun. Preliminary data shows that production dropped by around 1.4 million barrels a day in January, and some countries had reduced production by more than planned and were ahead of the schedule.

As of the end of January, Russian production had fallen by 117,000 barrels per day, which is also more than double the amount initially planned by our companies. Our companies participate in this on a voluntary basis.

We have noted that the effectiveness of the agreements and decisions is already visible, since the price has stabilized at $55 per barrel. According to leading analytical agencies, the price is much closer to a fair price, about 10 to 15 barrels higher than it would have been without the deal.

Vladimir Putin:

10 to 15 dollars?

Alexander Novak:

Yes, 10 to 15 dollars per barrel.

We also see a decrease in the speculative pressure on prices, because at the beginning of the year, when prices fell hard, there was an all-time high number of traders shorting oil. Now, the situation has stabilized.

We also see a decrease in price volatility. The statistics for January show that price fluctuated within $5 relative to the median value of $55. We can now talk about the gradual recovery of the investment appeal of the industry. This year, for the first time in the last three years, all market participants expect an increase in investments in the industry, which will help avoid a collapse in production in the future.

In general, I must say that the Vienna meeting showed that all countries intend to properly execute the agreement, as it is in the interests of both the producers and the consumers. We believe that rebalancing the market, subject to full compliance with the agreements in the first half of the year, will allow us to reach the level of leftovers equal to the average over the last five years for oil by mid-2017. This is the outcome, the goal that was set in order to balance and stabilize the oil market.

Vladimir Putin:

This volume, the conventional excess amount of oil on the market, when do you think it will run out – by around mid-2017 or so?
Alexander Novak:

By the middle of 2017. It’s 300 million barrels, which is above the multi-year average of stored oil leftovers.

Vladimir Putin:

Are our companies facing any problems in that regard?

Alexander Novak:

Our companies are operating under the agreement, and do so on a voluntary basis, as it really is beneficial both for the companies and the budget in general. About 70 percent of additional revenue that we have today go to the budget.

Vladimir Putin:

Good. Thank you.

The first 2018 FIFA World Cup fan passport was issued on February 1. How is this work organized, and where will it go from here?

Mr. Nikiforov, please go ahead.

Minister of Communications and Mass Media Nikolai Nikiforov:

Mr. President,

Indeed, we issued the first fan passport in Moscow today. Admission to stadiums for the 2017 FIFA Confederations Cup and the 2018 World Cup will be granted upon presentation of two documents: a fan passport and a ticket. Registration on www.fan-id.ru is required to obtain a fan passport. This can be done by both Russian and foreign fans.

Moreover, once registered, that person can enjoy visa-free entry to Russia under our government guarantee, which we issued when organizing the World Cup. This electronic document, plus a mark in an appropriate database.

Our key goal is to make visiting the event as safe, convenient and comfortable as possible. This eliminates the need to do additional checks when fans enter the stadium. Therefore, we recommend that everyone who has already bought a ticket or plans to attend matches register in advance.

Fan passport centers are open and already issuing passports in four Confederations Cup host cities, namely, Moscow, St Petersburg, Kazan and Sochi. We are talking about thousands of applications. We think the closer we get to the summer, the more applications we will process.

It’s Russian technology. We used something similar at the Olympic Games in Sochi, and we plan to use it again in 2018. Probably, we will use this standard procedure during the 2019 Student Games as well.

Overall, we believe that it should become a standard solution to ensure safety, convenience and comfort. I believe Mr. Mutko is better positioned to talk about the place of the fan passport in the overall organization concept.

Vladimir Putin:

Mr. Mutko, please go ahead.

Deputy Prime Minister Vitaly Mutko:

Mr. President, Mr. Nikiforov has already mentioned that this is an important step in our preparations for the World Cup and the Confederations Cup. I just wanted to add that this component of the security concept approved by you will, of course, allow us to bolster security measures and create a more comfortable environment.

This will also provide several additional services for our foreign guests and Russian fans, including visa-free entry, free mass transit rides in the World Cup host cities for fan passport holders, and the opportunity to see matches in other cities upon presentation of a ticket.

So we hope that we now have all the necessary capabilities in terms of information. Regardless of where they live, a fan can register and receive confirmation, and Russian Post will deliver a passport to his home. As such, we believe that this work is already underway.

We think about 700,000 tickets will be sold for the Confederations Cup. More than 100,000 applications have been filed already. About 10,000 people are in the process of obtaining their fan passports. It’s very convenient. We will think through all the ins and outs. If needed, such centers will be built near the stadiums in case someone loses or forgets their stuff. We will take care of everything.

Mr. President, we have little time left before the Confederations Cup. The overall preparations are going at a good pace, and the first match in St Petersburg will be held on June 17, which will mark the opening of the Confederations Cup.